Irrelevant to some, but Roger Relevant to others…

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Pensions – are they worth it?

Pensions – a boring subject for many, but absolutely crucial for others. What does Roger think?

Well let me give you an idea of my views by simply telling you the following true story.

This morning I received a letter from a pension provider. When Roger was much younger (about 16 years ago to be precise) he started his first pension. It was at his first ‘good’ job, and they arranged for him to meet a pensions advisor. This lady asked when Roger would like to retire. I explained that I though that my line of work was for young people, therefore I would have to retire at 55 because (by then) I’d be past it. So 55 it was.

I soon left that job, but not before I had put £1470 in my pension pot. Each year since, I get a letter telling me how much my pension pot is worth. This morning they told me that in 15 years time (when I am due to retire) they estimate that it will be worth £3800. In other words, after 30 years of investing my money, they will have just over doubled my money. Maybe I’m being ungrateful, but surely that’s not particularly impressive for 30 years of investment by ‘clever’ investment experts?

My story has not quite ended though. They estimate that (when I reach 55) it will provide me a yearly pension of £80. Yearly, I stress, not weekly or (even) monthly. In general, when I retire I’ll get 25% of this (£950) back immediately (one-off tax free amount), but then I’ll have to wait another 6-7 years before I get the rest of the original money that I invested (i.e. total of £1470).

In other words, I gave them £1470 in 1997, and they tell me that they’ll give me all this money back in 2028.

In other words, I give them money, and then 35 years later they’ll give me back the same amount (£1470).

From 2028, they’ll still be giving me £80 per year. However, it will take another 29 years (of this £80 per year trickling) before I finally get back all the money that I have in my pension pot (total £3800) when I retired.

In other words, I have to wait until I’m 84 before I actually get hold of the full value of my pension pot.

I hope I live that long.

Oh, and let’s not forget that your pension income is subject to tax. No wonder modern young people are dissuaded from starting a pension!